Global Markets Slip; Buffett Targets IBM

Bikram Pandey
14 Nov, 2011
New York City

U.S. indexes eased and declined as much as 1% on the rising worries that the euro may face a heavy selling pressure as Italy battles to implement austerity measures. The euro eased 1% and European markets turned lower after yields on Italian bonds remained elevated.

[R]4:23 PM New York – U.S. indexes eased and declined as much as 1% on the rising worries that the euro may face a heavy selling pressure as Italy battles to implement austerity measures. The euro eased 1% and European markets turned lower after yields on Italian bonds remained elevated.[/R]

U.S. indexes declined on the growing realization that Italy and Greece face daunting tasks in reforming their economies, cut expenses and revenues all at the same time.

Investors are increasing the probability of a recession in the euro zone, weakening of the euro and falling U.S. exports may slowdown its economy as well.

The popular indexes in New York declined and in Europe turned lower after rising in the early trading. Bond yields of Spain, Italy and France rose on the worries that the European Central Bank and the rescue fund may be overwhelmed sooner than expected.

The Italian Treasury sold €3 billion of five-year bonds at 6.29% yield, up from 5.32% at the last auction on Oct. 13. The yield declined from 6.45% in Friday’s trading and the bid-to-cover ratio improved to 1.47 from 1.34 last month.

However, sceptical markets drove up the yields of Spain, Italy and France in trading.

In the secondary market, the yield on the 10-year Italian bonds increased 20 basis points to 6.62% and Spanish bonds increased 17 basis points to 5.96%.

In Paris, the CAC-40 Index declined 21.59 or 0.7% to 3,127.79 and in Frankfurt; the DAX Index edged lower 22.04 or 0.4% to 6,034.99.

The OECD leading index declined, industrial production in the euro area eased, but German factory employment rose in September. Estonian jobless rate fell and Portugal’s economy contracted in the third quarter. The Swiss producer and import price index slid in October.

The UK indexes declined as Italy and Greece race to implement austerity measures. Irish construction activity fell again in October. Rolls-Royce won a $500 million order from Saudi Arabian Airlines. Lonmin fiscal 2011 revenue rose 26% and net more than doubled.

Aircraft maker, Boeing signed the largest aircraft deal of $18 billion with Emirates Air. The state controlled airline has been expanding in the last seven years and has been taking market share from the European airlines for the long haul traffic between the U.S. and Asia and between Europe and Asia using the hubs in the Middle East.

Boeing will sell at least fifty of 777-300 ER to the Emirates Airlines. Separately, Boeing said it received a six plane order for its latest long haul Dreamliner from Oman Airways.

The rising competition from Oman, Dubai and Abu Dhabi in UAE, Qatar and Saudi Arabia to capture the long haul transcontinental business will pose a serious challenge to the European state controlled carriers. Qantas is already facing losses in its transcontinental business between UK and Asia and Australia.

Bank of America agreed to sell its stake in China based bank and also increased customer services fees to pass on higher bonus cost at its brokerage arm Merrill Lynch and rising losses at its subprime lender Countrywide Financial.

Warren Buffett said his conglomerate Berkshire Hathaway bought 64 million shares or 5.6% stake worth $10.7 billion in IBM. The decision to invest in the tech services provider follows the IBM’s evolution from the product and technology vendor to a services provider with the future growth in the emerging markets and from global expansion.

Berkshire Hathaway’s number one holding is in Coca-Cola Company that is valued at $13.5 billion and the $10.7 billion stake in IBM is the second largest.

In the U.S. earnings news, retailer Lowe's third quarter net fell 44.3% to $225 million. Russia based wireless carrier VimpelCom said third quarter net declined 79% at the end of September and crossed 200 million subscribers at the end of October.

Stocks in Japan rebounded after economy expanded at 6% annual rate in the second quarter. The surge in exports and an increase in private consumption lifted the growth but the economy is expected to struggle in the year. Tosoh Corp declined after a fire broke out at its plant in Southern Japan.

Australian stocks closed higher and lending in September declined 6.2% in September. News Ltd said its internal inquiry did not find any privacy law violations and systemic hacking as it was discovered in its UK operation after denying for three years. BHP Billiton plans to spend $4.5 billion in more shale gas acquisitions in the U.S.

Commodities, Bonds and Currencies

U.S. bonds yield on 10-year U.S. bond closed up at 2.04% and 30-year bond decreased to 3.04%.

The U.S. dollar rose 0.8% at $1.363 to one euro and closed lower against the Japanese yen to 77.11.

Immediate delivery futures of Texas crude oil decreased $0.81 to $98.18 a barrel and futures of natural gas decreased 13 cents to $3.45 per mbtu and gasoline prices decreased 6.99 cents to 253.39 cents a gallon.

In metals trading, copper increased 2.40 cents to $3.50 per pound, gold fell $5.30 to $1,782.80 per ounce and silver decreased $0.38 to $34.30.